Navigating estate planning amid rising interest rates requires careful planning. Tools like spousal lifetime access trusts (SLATs) and grantor retained annuity trusts (GRATs) can still help you transfer wealth to heirs while reducing taxes.
However, higher IRS rates create bigger challenges, affecting how much growth can pass tax-free. Understanding how these strategies work in a high-interest environment can help you make informed choices for your family’s financial future.
Adjusting SLATs amid higher rates
Higher rates can slow the growth of assets inside a SLAT, as investments may earn less relative to the IRS discount rate. SLATs let you move assets out of your taxable estate while giving your spouse indirect access if needed, preserving family wealth over time. The core benefit — keeping future growth tax-free for heirs — remains strong, even if rate changes temper inside growth.
Adjusting SLATs naturally leads to considering GRATs. While SLATs focus on keeping wealth in the family over the long term, GRATs offer a way to pass high-growth assets to heirs more aggressively. Combining both tools can give you flexibility in how you manage transfers and taxes.
Making GRATs work despite the hurdle
Rising interest rates push up the IRS “hurdle rate,” making it harder for GRATs to pass significant value tax-free. With January 2026’s 7520 rate around 4.6%, the hurdle feels steeper. In a GRAT, you transfer assets but receive fixed annuity payments for a set term, essentially renting the assets to yourself. Strategies to improve outcomes include:
- Funding GRATs with fast-growing assets, like stocks, that may outperform the IRS hurdle rate
- Setting up GRATs over multiple years to spread risk and adjust for rate changes
- Choosing shorter terms, typically 2-5 years, to limit exposure to market swings
These strategies often pair well with SLATs, giving you options to balance growth, access and family flexibility. Legal guidance can help determine which combination fits your goals and ensures compliance with IRS rules.
Planning with precision
Higher interest rates shift the rules of wealth transfer, making timing, asset selection and trust structure more critical than ever. Small adjustments in how and when you fund trusts can have a meaningful impact on what ultimately passes to heirs.
Careful monitoring of rate changes and market performance helps align estate strategies with long-term goals while managing potential tax consequences.